Vacation Home/Mid-term Rental Property

[Ann Wing]

Hello,

I’m still new and learning as much as I can so I appreciate all feedback and thoughts anyone would like to share. I am ready to purchase another rental property (my second) but like so many am in a very hot market. I have considered looking into other areas in my state that aren’t as competitive, but have also been intrigued by an out-of-state rental.

My question: what experience/thoughts do others have about purchasing a property in a vacation area that will serve as an occasional vacation home for my family and myself and but will primarily serve as a rental - not sure if there is a term for it, but minimum one-week rentals and ideally snowbirds who will rent for a month-6 weeks or so during the high season.

In my very preliminary research I have seen there may be some additional tax considerations but I’m wondering if this ever makes sense? I’m not necessarily opposed to shorter-term rentals but living out of state and having to have a team in the area to turn the place around after a 2-day rental seems like it wouldn’t make sense financially or in terms of stress.

Thanks!

[Brian Kantor]

Hi, Ann. This is essentially what my wife and I do, but the opposite direction (aka, we have a short-term rental in VT ski country). 

A few points to consider:

• When you are buying a vacation home/investment property, you will need a larger downpayment on your mortgage and pay a higher interest rate. Not a problem, but worth considering. You'll be closer to 25% down and 4% interest vs 20% down (or less) and 3% interest
• From a tax perspective, you should still be able to write off expenses in the same way, but if you use the property 1 month a year for vacation, then you'll be able to write off 11/12's of your expenses against your income instead of 100%. CONSULT AN ACCOUNTANT ON THIS.
• Airbnb allows you to set minimum stay durations, so if you only want people staying for a 4-week minimum or whatever, you can set that up in the software so it's only available for people looking for that.
• Beware that laws can change on a dime in any state or municipality, so just because short-term rentals are legal today doesn't mean that they will be tomorrow. So plan ahead. If the law changes, can you convert to a long-term rental and still have the numbers work? If not, you may want to reconsider purchasing this property.
• Once you get a team in place to turnover a rental (cleaning staff) and have a handyman on call, it shouldn't matter all that much that you aren't local whether you are turning it over a few times a week or a few times a year. If you're concerned, hire a property management or rental company to handle everything for you.
• Short-term rental insurance is typically 2-3x long-term rental insurance. Again, not a problem, but something you need to account for when doing your math.

Good luck!